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SYDNEY, Australia -- The insurance industry is suffering a shortage of "talent," a U.S. insurer executive says.

Douglas W. Leatherdale, chairman and chief executive officer of The St. Paul Cos. Inc. in St. Paul, Minn., told the International Insurance Society's 34th annual seminar in Sydney, Australia, July 12-15, that "talent" -- not scale, brand strength or even capital -- distinguishes high-performance companies.

He warned that insurers are being restrained by the inability to attract and retain qualified management staff. They are participating in "a high-stakes war for skilled executive management."

Many companies do not grasp the importance of the battle, and even those that do are vulnerable to competitors' raids, he noted.

St. Paul took part in a survey by management consulting firm McKinsey & Co. that found skilled people were more mobile and harder to retain. The survey also found that new executive managers require skills, including information technology competence, that are in short supply.

"There is a growing imbalance between supply and demand. The pool of 35- to 54-year-olds is declining," he said. The younger generation has different ideas on career fulfillment. The scarcity of executive management talent would be the major factor impacting insurers and other companies' long-term financial performance.

Mr. Leatherdale said the "talent war" can be won only with commitment from the CEO and board to build a culture that makes acquiring talent an objective.

McKinsey found the top companies were those proficient at acquiring the best people, he said.

Autonomy, job challenges, a sense that the company is well-managed and high regard for the corporate culture attract talent, he said. Pay and benefits, location and job security are less important, he said.

However, companies attracting talent paid more, but remuneration was linked to performance and used to differentiate the best employees from average ones.

Mr. Leatherdale said St. Paul, an insurer with "deeply ingrained attitudes," had found change slower and "more painful" than some managers may have liked.

But St. Paul implemented a plan where every employee was accountable for financial performance. St. Paul has implemented a rigorous employee review system and linked performance with stock ownership mechanisms, under which employees now own 12% of the stock.

The global reinsurance unit has a separate, long-term incentive program for senior management with rewards linked to profits and premium growth. The benefits can be up to 60% of a participant's annual salary.

Mr. Leatherdale said St. Paul previously had employed people with good skills in underwriting, claims handling and risk management consulting but had focused less on leadership skills.

St. Paul recruited from outside the organization, getting people who had built profitable businesses elsewhere, he said.